Xilinx Inc. and Subsidiaries - Page 27

              B.   Respondent’s Interpretation of Sections 1.482-1 and                
                   1.482-7, Income Tax Regs., Is Incorrect                            
              Neither party disputes the absence of comparable                        
         transactions in which unrelated parties agree to share the spread            
         or the grant date value.  Nor do the parties dispute the fact                
         that unrelated parties would not “explicitly” (i.e., within the              
         written terms of their agreements) share the spread or the grant             
         date value.  The parties, however, disagree about what effect                
         these facts have on respondent’s authority to make allocations               
         pursuant to section 1.482-1, Income Tax Regs.                                
              Pursuant to section 1.482-1(b)(1), Income Tax Regs., “A                 
         controlled transaction meets the arm’s length standard if the                
         results of the transaction are consistent with the results that              
         would have been realized if uncontrolled taxpayers had engaged in            
         the same transaction under the same circumstances”.  Section                 
         1.482-1(b)(1), Income Tax Regs., further states:                             
              because identical transactions can rarely be located,                   
              whether a transaction produces an arm’s length result                   
              generally will be determined by reference to the                        
              results of comparable transactions under comparable                     
              circumstances.  [Emphasis added.]                                       
              Respondent presented no evidence or testimony establishing              
         that his determinations are arm’s length.  He simply contends                
         that the “application of the express terms of Treas. Reg. �                  
         1.482-7 itself produces an arm’s-length result,” and that “it is             
         unnecessary to perform any type of comparability analysis to                 

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